Update on CA SB234 - The Startup Killer
26 May 2011
Tags: ca sb 234 affiliate taxSo, after Robert Scoble’s kind RT and post about this subject, I wanted to give an update on the whole mess.
What is the deal now?
So, for a long time several states, including California, have been trying to pass the so-called “Amazon Tax”. These laws are an attempt to get out-of-state retailers to collect California sales tax by qualifying affiliate marketers (a massive industry, $1.6bn in CA alone each year) as a “nexus”. The problem is, not only is the bill unconstitutional, it doesn’t work.
Whenever it passes, Amazon and all the other merchants just kill their relationships with affiliates. No taxes get collected, the affiliate move out of state and that is that. Illinois just recently passed it - the “Main Street Fairness Act” and low and behold, all the major affiliates left.
Meh, I don’t care about Amazon
The problem here isn’t Amazon - most affiliates don’t care about them. The issue is that there are tens of thousands of other merchants that Affiliates do rely on (their commissions are higher, they pay faster, have better integration, etc.). They can’t collect the sales tax and remain competitive, so they have to terminate affiliates in those states.
What do you do when you are an affiliate? I know one personally, who lives in California, who would lose 97% of his business. He has only one choice: move.
These bills have been sponsored as of late by Wal-Mart, Target, Home Depot and Best Buy. I find it rather funny that they claim to be looking out for main street when they happen to be the cause of many of main street’s problems.
And SB234 is bad why?
(Read the bill text here) Unlike the other affiliate nexus taxes that try and single out affiliates, SB234 has no such language. The bill is as broad as it can be with the whim of the Board of Equalization able to determine what qualifies as nexus at any time. Conceivably a web host could establish nexus. Most definitely an independent contractor would establish nexus - if they were engaged in anything that helps sell products (what doesn’t?). The bill is unbelievably non-specific and basically leaves us at the whim of a government entity.
In the end here, it is too broad a mandate. We can’t afford to have the vibrancy of the tech startup world get held back by a law drafted by politicians with no idea how broad reaching the consequences of this bill can be.
Where is it at now?
Last Tuesday with the help of the Performance Marketing Association, I was able to meet with legislators to try and get support for amending or killing this bill. It was a start, but it is an uphill battle against some very intrenched interests. The bill has already passed from the state Senate to the Assembly. Several were responsive to our appeals but we have a long way to go. _ Furthermore, this bill can be passed with a simple majority._
Oh crap, what can I do?
Right now we need startups and VC’s to speak up. Everyone at the capital is saying that “startups are the future of California’s economy” (no joke!). What we need to do is hammer them and make it clear just how bad this law can affect our lives. Every tweet, every blog post, IRC session, whatever, will help. The more buzz against this thing, the better!
How do I stay up to date?
I’m going to be updating here and on Twitter (@kzorz) with the hashtag #nosb234 - there will be a hearing in June and we need everyone we can get to show up and oppose this bull bill. Hopefully we can get some more info up on Hacker News and other forums so that more people are aware. If you want to help tweet at me and I’ll DM you to get you looped in. Right now your support is critical, so please help spread the word!